Billions Of Dollars Are Headed To UC And CSU. How Should They Spend It?

California State University Chancellor Timothy P. White announced on Oct. 22, 2019 that he will retire in 2020. (Photo courtesy The California State University)

California will have a funding surplus of about $7 billion for the next fiscal year, according to a Legislative Analyst's Office report released Wednesday. And some of that surplus, the report recommends, could go to University of California and California State University systems to help pay workers more, boost enrollment, and fix mounting maintenance problems.

"Most of the categories are just major fundamental parts of [UC, CSU] budgets," said Jason Constantouros, an analyst in the Legislative Analyst's Office. "Compensation is more than half of their spending. So it makes sense that the state's thinking about cost increases. Likewise, facilities are a significant portion of their budgets. And so it also makes sense to look at those costs."

It's up to the state legislature and governor to make final decisions on how much to spend. And right around these months, lawmakers begin hearing from university leaders about next year's funding.

UC President Janet Napolitano and CSU Chancellor Tim White are both stepping down in 2020. During their tenures, they've built reputations as strong advocates for funding. It's left to be seen whether they bring their A game to their last university funding cycle.

The report notes that both universities have more than a billion dollars in core reserves — $1.5 billion at CSU, which accounts for about three months of operating expenses, and $1.1 billion at UC, or about a month and a half of operating costs.

The systems set aside some of that money for emergencies and possible future economic downturns, although many student advocates have argued that those reserves should be used in part to lower tuition.

Historically, tuition at California's public universities has remained flat and then spiked dramatically, typically in response to state funding shortfalls brought on by economic crises. And that's made it very difficult for many qualified students to afford a college education.

"Our long-standing message has been that the state could develop a more formal policy to guide tuition decisions," Constantouros said.

One option, he said, is for state and university leaders to craft a policy in which students and the university pay a set proportion of the per-student cost to run the campus, say half and half. Under that scenario, tuition increases would be split between the university and students.

"Students are always going to be opposed to increases in tuition," said Varsha Sarveshwar, President of the UC Student Association. She said the state should do more to cover the entire cost to students of a public higher education.

THE FUNDING FORMULA

The state's General Fund covers about 60% of core funding for UC and 75% for CSU, according to the report.

"Compared with many other areas of the state budget," the executive summary from the LAO report reads, "the Legislature has considerable flexibility through the annual budget process to decide which university costs to support."

The report identifies some of the main funding concerns that will face lawmakers. Here are some of its findings and recommendations:

MAKING SURE EMPLOYEES GET PAID

The analysis says there are three key workers' issues that the universities will face:

  • Salaries
  • Pension contributions
  • Health benefits for employees and retirees

Nearly all of the labor contracts covering most CSU employees expire next year, so administrators will be negotiating salary and benefit increases. Faculty raises have ranged from 1% to 5% in each of the last seven years.

In the UC system, salaries for faculty, who do not have union representation, have been raised 3% in each of the last seven years. The report calculates that a 1% employee salary increase for either of the university systems will total about $45 million.

"We are in economic good times now," said Charles Toombs, president of the California Faculty Association. "The governor and the legislature have certainly taken advantage of these economic good times to begin the process of re-investing in higher education... for years we were not getting the money we needed."

And that has meant no salary increases. Toombs wouldn't say what pay raises his union would ask for when contract talks begin in the spring.

These funding decisions affect a lot of people in Southern California and the rest of the state. CSU employs about 50,000 faculty and staff, while there are about 40,000 people working in the UC system.

The CSU system nearly ground to a stop in 2016. Faculty were days away from going on strike after asking for a 5% salary increase. Administrators agreed to annual increases of 4.5%, 3.5%, and 2.5%.

There is also significant pension underfunding that lawmakers should consider, the report says.

"In past years, [university pension funds] did not fully fund pension benefits earned by employees. While this underfunding does not affect the pensions of existing retirees, the state and universities currently lack adequate funds to fully pay for pension benefits that today's employees will be owed when they retire," the authors wrote.

STUDENT ENROLLMENT GROWTH

Since capping enrollment during the recession, both university systems have received state funds to add more slots. California's demographic projections say that while next year's high school graduating class will drop slightly, it is projected to increase 1% the following year.

If lawmakers decide to increase enrollment by 1%, that will require about $45 million in additional funding for the UC system and about $40 million for the CSU system, according to the LAO. The money goes to pay for additional faculty, staff, and other expenses that result when adding more students to a campus.

"One of the fundamental things the state does every year is think about how many students the segment should serve and whether to fund enrollment growth," the LAO's Constantouros said.

But if the universities are going to increase slots, some higher ed observers believe the campuses also need to re-consider how they admit students because admission at the most in-demand campuses, like UCLA and UC Berkeley, tends to favor those students who can afford college preparation and professional help to put together their college applications.

"I go to Berkeley," Sarveshwar said. "I think there's a really valid concern coming from the campus — particularly in an area that's really, really built out, where there aren't that many plots of land to develop — that it is becoming difficult to basically ensure that all these students are benefitting from the same quality of education and quality of services."

Which leads to another big funding pressure facing legislators:

FIXING DILAPIDATED BUILDINGS

Most UC and CSU campuses have buildings that aren't holding up very well.

Maintenance staff from Cal State campuses complained to trustees recently that their administrators aren't hiring more maintenance workers and that's leading to growing maintenance backlogs.

Those maintenance backlogs and need for new construction add up to about $10 billion in both university systems combined. And each university system has saved up over the years roughly $1 billion in reserves, a portion of which can be used for any of these expenses.

Read the full report: